Treasury Yields Fall Even Amid Resilient Economy, Sticky Inflation — Market Talk
0912 ET - Treasury yields fall despite U.S. indicators showing resilient economy and sticky inflation. September PPI inflation accelerates to 1.3% from August's 0.5%, versus WSJ consensus of 0.6%. Retail sales beat expectations, rising 0.8%, although it slows from August's 1.3% pace. Weekly jobless claims edges higher after five consecutive declines, to 199,000 from 198,000. The numbers seem to support hawkish monetary policy, but Fed expectations are little changed, with a hold priced in for the next meeting. The WSJ Dollar Index falls 0.2%. The 10-year yield slips to 5.062% from 5.189% yesterday. The two-year falls to 4.742% from 4.800%. ([email protected]; @ptrevisani)0909 ET - Major cryptocurrencies are falling, continuing weakness seen the previous day as rate hike fears loom larger in investor's minds. The decreases seen in cryptocurrencies reflect "a broad decline in appetite for digital assets amid economic and geopolitical uncertainty," says Antonio Di Giacomo of XS.com in a note. Bitcoin falls 1.4% to $80,627, while ethereum slides 2.7% to $2,350, XRP drops 2% to $1.30, and solana falls 2.4% to $101.57. Altcoins have been seeing increased weakness, due to "a broader shift in market positioning," says Di Giacomo. ([email protected])0821 ET - Bitcoin has become more closely correlated to gold prices than U.S. stocks for the first time since late 2020, Block Scholes Thahbib Rahman says in a note. The 90-day rolling bitcoin-gold correlation sits at 51%, around highs reached in November 2020 when the Covid-19 pandemic led to fiscal and monetary stimulus, he says. The move higher started in June and accelerated in August after the U.S. Treasury announced increased buybacks of long-term debt to curtail yields, he says. In contrast, bitcoin's correlation to U.S. equities, which it has tracked more closely over the past few years, has begun to wobble. The 90-day correlation has fallen to 40% from 62% in February. Bitcoin falls 1.1% to $80,815, according to LSEG. ([email protected])0803 ET - Romania appears closer to ending its political deadlock after the Social Democrats agreed to join Prime Minister-designate Luca Niculescu's government and this should help stabilize the Romanian leu after recent losses, ING's Frantisek Taborsky says in a note. "A government should reduce near-term pressure on the leu and lower the risk of Romania losing its investment-grade rating." However, the economic backdrop remains difficult after last year's fiscal tightening. Niculescu's immediate priorities will likely include continuing fiscal consolidation, he says. The political breakthrough is positive for the leu but implementation and the credibility of deficit reduction will remain key, he says. The euro trades flat at 5.3325 leu, having reached a record high of 5.3550 on Oct.2, according to LSEG. ([email protected])0800 ET - The U.K.'s productivity gains in the white-collar services sectors are exceptional, Morgan Stanley's Bruna Skarica says in a note. Output in the information-and-communications sector was 7.1% up on the year in August, while in the professional-services sector it rose by 9.0%. "The next leg of the U.K.'s growth debate pertains to potential GDP growth, and how much of this year's resilience is increasingly reflective of a slightly structurally more sound economy," Skarica says. However, any discussions around productive capacity by the Bank of England are likely to be cautious, she notes. Morgan Stanley lifts its third-quarter growth forecast to 0.65% from 0.45% previously, resulting in a 2026 growth forecast of 1.4%. ([email protected])0753 ET - The dollar's strength and record-high gas prices will make it difficult for central and eastern European currencies to sustain any gains, ING analyst Frantisek Taborsky says in a note. The Polish zloty is particularly vulnerable due to the National Bank of Poland's cautious stance on raising interest rates, he says. The majority of NBP policymakers see December as the earliest for discussing a rate increase. Government measures to cap household fuel prices could also be extended, allowing the NBP to delay tightening further, he says. The euro trades flat at 4.3673 zloty and ING expects it to return to a range of 4.380-4.400.([email protected])0716 ET - The European Union should squeeze Russia, not Ukraine, to end their war, the bloc's top diplomat, Kaja Kallas, says. "The majority of Russia's funding for the war comes from oil revenues," she says in Brussels on Thursday. Ukraine wants the war to stop and cutting off funding for the war "is the way to do it," Kallas says. Her comments come after U.S. President Trump struck a deal with Russia on diesel and called on Ukraine to stop hitting Russian oil refineries. Kallas notes that the EU adopted nearly 1,600 sanctions listings targeting Russian individuals and entities on Monday. "This is the only way to put pressure on Russia." ([email protected])0708 ET - August's unexpected 0.1% growth in U.K. GDP lifted annual growth to 2.1%, an acceleration through the 2% threshold that gives the data some wow factor, Berenberg's Andrew Wishart says in a note. The sector breakdown suggests artificial intelligence is behind much of the upswing, with increases in computer-programming activity raising the output of the "information and communication" sector by 7.1% year-on-year, he says. Consumer expenditure has also proven remarkably resilient. In policy implications, the recent growth has not resulted in any pickup in employment. "As a result, we do not expect a traditional cyclical tightening of the labor market to follow," Wishart says. The Bank of England need only hike interest rates once, in November, he says. ([email protected])0702 ET - The U.K.'s 0.1% GDP growth in August is the fourth consecutive month in which the monthly number has beaten consensus, Investec economist Ellie Henderson says in a note. "The U.K. has certainly been more resilient than we would have expected in the face of considerable geopolitical uncertainty and the energy shock," she says. However, there are some potential early warning signs, such as in consumer-facing services, and the economy's resilience will continue to be tested though if energy prices stay elevated. Activity could be further dented by interest-rate hikes, she adds. Investec expects the Bank of England to respond to the macro environment by raising the key rate in November and then again in February next year, Henderson says. ([email protected])0700 ET - British households face renewed pressure from rising wholesale natural-gas prices and higher long-term interest rates, which could weigh on activity over the coming months, KPMG's Yael Selfin says. It comes after the U.K. economy showed considerable strength in the first eight months of the year, despite significant headwinds from the Iran war and higher energy prices, she says in a note. GDP grew 0.1% on month in August, leaving the economy on course for a solid expansion in the third quarter, Selfin notes. However, consumer-facing services fell by 0.3% in August after a decline of 0.1% in July. "We expect GDP growth to slow in the fourth quarter of this year amid higher energy prices and borrowing costs," she says. ([email protected])0650 ET - The fundamental backdrop remains supportive for the dollar even as the currency falls on concerns about the sustainability of debt-funded AI investments, MUFG Bank's Lee Hardman says in a note. Following record capital inflows into U.S. equities encouraged by AI optimism, the dollar is vulnerable to a correction lower when investor sentiment towards AI sours, he says. However, Wednesday's higher-than-expected U.S. inflation data for September will keep pressure on the Federal Reserve to keep raising interest rates and increased the probability of another increase on October 28, which is positive for the dollar. The DXY dollar index falls 0.4% to 102.108 after hitting an 18-month high of 102.945 Wednesday. ([email protected])0610 ET - Flows into European cryptocurrency exchange-traded products rose by 15% in the third quarter, according to data from ETF provider HANetf. Inflows reached $360 million in 3Q, up from $310 million in the second quarter. Assets under management in crypto ETPs increased 55% in 3Q, HANetf finds, but much of that growth can be attributed to bitcoin's price rebound over the summer, from around $60,000 at the end of July to around $80,000 by the end of September. Bitcoin is 0.7% lower at $81,192. ([email protected])